Reasonable-Bank Rule: Eleventh Circuit Clarifies Good-Faith Discretion for Financial Institutions Facing Suspected Fraud

1. Introduction

In Gent Row, LLC v. Truist Financial Corporation, No. 24-10387 (11th Cir. June 20, 2025), the United States Court of Appeals for the Eleventh Circuit addressed the scope of a bank’s contractual discretion to freeze, return, or refuse funds when it suspects fraudulent activity. The dispute arose after Truist Financial Corporation (“Truist”) blocked a $2.1 million outgoing wire and returned a $6.75 million deposit—effectively shuttering Gent Row, LLC’s PPE transaction with a Canadian broker amid the COVID-19 pandemic. Gent Row sued for breach of contract, asserting that Truist’s actions destroyed a lucrative business opportunity. The district court granted summary judgment for Truist; the Eleventh Circuit affirmed, fashioning what can fairly be called the “Reasonable-Bank Rule” for Florida contract claims involving discretionary banking agreements.

2. Summary of the Judgment

• Contract at issue: Truist’s Commercial Bank Service Agreement (CBSA), which allowed the bank, in its “reasonable discretion,” to refuse or reverse deposits, freeze funds, or close accounts whenever it “believe[d]” an account was tied to fraudulent or impermissible activity.
• Holding: Truist did not breach the CBSA. Exercising its discretion in good faith, the bank reasonably froze Gent Row’s account, returned the incoming wire, and closed the account after identifying multiple fraud red flags.
• Standard applied: Under Florida law, a party with contractual discretion breaches the implied covenant of good faith only when “no reasonable party in the same position would have made the same discretionary decision.”
• Outcome: Summary judgment for Truist affirmed; Gent Row takes nothing.

3. Analysis

3.1 Precedents Cited

1. Share v. Broken Sound Club, Inc., 312 So. 3d 962 (Fla. Dist. Ct. App. 2021)
   —Established the “no reasonable party” test for evaluating breaches of the implied covenant of good faith when contractual discretion is involved.
2. Ernie Haire Ford, Inc. v. Ford Motor Co., 260 F.3d 1285 (11th Cir. 2001)
   —Applied the same test in the federal context; cited to confirm the Eleventh Circuit’s consistency.
3. Cox v. CSX Intermodal, Inc., 732 So. 2d 1092 (Fla. Dist. Ct. App. 1999)
   —Underscored that contracts granting one party discretion implicitly require good-faith exercise of that discretion.
4. Cole v. Plantation Palms Homeowners Ass’n, Inc., 371 So. 3d 413 (Fla. Dist. Ct. App. 2023)
   —Reiterated basic breach-of-contract elements under Florida law (existence, breach, causation).
5. Federal Rule of Civil Procedure 56
   —Guided the summary-judgment framework: absence of genuine dispute of material fact.

3.2 Legal Reasoning

The court began by recognizing that Florida law governed the contract. It then dissected the CBSA’s language, highlighting multiple provisions that gave Truist sweeping discretionary powers:

• Right to “close any account with or without cause at any time.”
• Right to “refuse to accept a deposit or reverse a deposit” in its “reasonable discretion.”
• Right to “freeze” or “close” an account whenever the bank “believe[d]” the account was linked to fraudulent or impermissible activity.

Because discretion exists, the implied covenant of good faith overlays those provisions. Citing Share, the Eleventh Circuit framed the decisive inquiry: would “no reasonable bank” in Truist’s position have taken the same steps?

Key facts justified Truist’s suspicion:

• An unusually large incoming wire (+$6 M) hit the new account on Day 1.
• An outgoing wire request ($2.1 M) to an entity different from the stated manufacturer was made on Day 2.
• The COVID-19 timeframe overlapped with well-publicized fraud schemes involving PPE purchases.
• Truist had internal advisories flagging the very fact-pattern it observed.

Moreover, Truist documented an “internal investigation” that included direct follow-ups with Gent Row’s principal, Mr. Beasley. Gent Row produced no evidence creating a genuine fact issue on whether the investigation occurred or whether Truist’s actions were commercially unreasonable. Applying the “no reasonable party” standard, the Eleventh Circuit concluded Truist’s conduct fell squarely within good-faith discretion.

3.3 Impact of the Decision

The opinion sets a clear, bank-friendly rule within the Eleventh Circuit (Alabama, Florida, Georgia):

1. Codifies the “Reasonable-Bank Rule.” Where a banking agreement vests discretion to guard against fraud, a financial institution avoids liability if its decision would be reasonable to an objective banking peer—especially when contemporaneous industry advisories exist.
2. Elevates the evidentiary burden on plaintiffs. Accountholders must now marshal concrete evidence showing not only bad faith but irrationality—i.e., that no reasonable bank would have acted similarly.
3. Encourages robust compliance protocols. Banks that maintain documented fraud-prevention guidelines and log investigative steps will likely secure early exits (summary judgment) from similar lawsuits.
4. Clarifies pandemic-era transaction risks. The court implicitly endorses heightened scrutiny of COVID-19 PPE deals—a principle readily extensible to future public-health or emergency-related transactions.
5. Influences contract drafting. Expect broader use of explicit discretionary clauses coupled with hold-harmless language, mirroring the CBSA provisions validated here.

4. Complex Concepts Simplified

• Implied Covenant of Good Faith and Fair Dealing: Even if a contract doesn’t say “act honestly,” the law presumes each party must not sabotage the agreement. When discretion is given, the party must exercise it reasonably.
• Summary Judgment: A shortcut that ends a case before trial if the moving party shows there’s no real dispute about important facts. The judge doesn’t weigh whose story is more believable; she simply asks whether a real dispute exists.
• Discretionary Banking Clauses: Contract terms allowing banks to act quickly (freeze, reverse, close) when they suspect wrongdoing. Courts will enforce these clauses so long as the bank’s decision is not arbitrary.
• “No Reasonable Party” Test: A tough standard for plaintiffs. They must prove that every hypothetical reasonable bank would have acted differently—essentially demonstrating the defendant’s decision was irrational.

5. Conclusion

Gent Row, LLC v. Truist Financial Corporation is more than a routine affirmance; it crystallizes how Florida’s implied covenant of good faith operates when a sophisticated commercial banking contract affords wide discretion. The Eleventh Circuit’s endorsement of Truist’s actions—taken amid unprecedented pandemic fraud—signals judicial deference to banks that proactively guard against suspicious activity, provided they act within objectively reasonable bounds. For lenders, the opinion is a blueprint for drafting and enforcing protective clauses. For commercial clients, it is a cautionary tale: contractual discretion, coupled with robust fraud protocols, can leave accountholders with little recourse if transactions raise red flags. Going forward, litigants challenging bank freezes or reversals will need compelling evidence that the institution’s actions were not merely harsh but wholly unreasonable.